DiaSorin S.p.A.

Good afternoon. This is the Coral School conference operator. Welcome and thank you for joining the DioSorin third quarter 2024 results conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Carlo Rosa, CEO of Diasorin. Please go ahead, sir.

Yes, thank you, Operator. Good morning, good afternoon, and welcome to the Q3 Diasorin conference call. I'm going to give the usual qualitative comments, and then Mr. Pedrona, our CFO, is going to take you through the numbers. First, it was a very strong quarter for the assortment. Excluding COVID growth was double digit 10%. We haven't seen quarters, double digit growth this way since COVID. And this is this means that strategy sound launch of products is working fine. And all our three legs are performing as expected. So I would start from immuno, the immunodiagnostic. We had a very good quarter, 11% growth year-on-year. And I would like to point out that the growth was very strong in the two main geographies, US and Europe. In the US, we continue to deliver on the hospital strategy, that I would like to remind everybody the commitment of the company was to achieve 600 hospitals by 2027. And we were supposed to deliver 100 new hospitals every year, including 2025. And I confirm that by the end, we're going to get to 100 new accounts by 2025. And the strategy, again, continues to work and is based on all the new products that we offer to these hospital systems, including MIMED. And I will have some specific comments on MIMED later. So North America closed the quarter for Immuno with a growth of 18%, which is stronger than some of the previous quarter, but in line with the company expectations. Europe has been growing 10% in the quarter, again, strong. This is due to the fact that we continue to see volume growth in all the different geographies in Europe, specifically with infectious disease, where there has been a couple of outbreaks in Europe of parvovirus, where we are the dominating company with this product. for some of the bordetella pertussis, which, again, we are very good install base in this clinical segment. So Europe has been delivering as well. From an ex-Europe and U.S. point of view, we continue to see strong growth in what we call the primary market. And so Australia is growing 15%. India is growing double-digit. Brazil and Mexico are also delivering high single-digit, low double-digit growth as expected by the plant. So I would like to say that in all this primary ex-US, ex-Europe geography, the strategy is working fine. China, we continue to see headwinds, as we've seen in one of the previous quarters, and We don't see honestly any reason why China should improve moving forward. VBP for the soaring has not been, it's not part of our numbers yet. It's not hit the company yet. We will see it starting from quarter four, but we continue to see a competitive situation where local companies are favored by hospital systems when when it comes to the immuno-diagnostic products. So China continues to decline single-digit, and we have no good news moving forward. So we expect that this will continue in 2025 as well. Now, if we go to molecular, okay, I think that molecular delivered as expected in the quarter plus 6%. Everybody, I believe, is waiting for comments on Plex. The Plex launch is doing very well for the company. We have a short of 100 customers in the final phase of the sales cycle. We already have a certain number of customers of these 100 are already buying from the assorting. I will not give any more quantitative data because of the competitive situation we are in. And just as a reference, these 500 customers do represent an opportunity to place 500 systems, okay? So just as a reference in terms of number of instruments that we plan to place. If I look at fix versus flex, So customers buying full panel versus adopting the flex model is 50-50. So 50% are competitive takes at fixed. 50% are moving to the flex algorithm. 50% are new customers. 50% are existing accounts, varying accounts. Again, let me remind you that it doesn't mean that the veraging account, in this veraging account we would be cannibalizing the respiratory panel, which is the one we are selling today. It means that they were veraging and they may be using veraging for blood or GI and then we would get back the respiratory panel from these accounts. And 70% of these 100 customers are hospitals and 30% are commercial labs. And one more point of reference. If we look at the hospital market and we look at inpatient versus outpatient, 70% are inpatients and 30% will be outpatient. Okay. So the program, I think, is working fine. Capacity in manufacturing, as we did comment a few times before, has been addressed. So there is no problem of capacity. So we continue and we're very positive about the program. I just would like to make a comment about flexing. It's very interesting to see that some of the competitors just a few months ago stated that Flex would not make a difference in this market. And now we are seeing some of the same competitors trying to offer a solution which is similar to Flex. So the truth of the matter is that Flexing, the way that Luminex, the assorting has presented it to the market, which is the concept of digital sample, which allows full flexibility from the customer and is not And let me call it a patched up solution that some of the competitors are putting together where you can run your flexibility in the markers you need to run, but then you need to re-flex and re-test, which you don't need to do with de-assuring. So that de-assuring solution and the flex solution, I believe, is very well accepted by the market. And the reason is very simple. From a financial point of view, it allows customers to save from 30% to 40% of current costs. in implementing multiplexing. So very, very attractive. When we look at the liaison NESS, as I reported, we completed the preclinical study in Australia for AVCR, and now we are conducting the clinical study in the U.S. We started October 1st, and we foresee to complete the season as requested by the FDA and then submit the product before the summer. Having the product approved, hopefully by the next flu season next year. So from a record diagnostic perspective, one more comment, the MDX product line, which is what we call is the targeted product line where we have no more than four different targets that we offer on the platform is the legacy business of the assorting has been growing in the quarter More than 20%. And this is to do with the fact that we launched some very interesting product in the U.S. One is to do with congenital CNV and very recently we got the approval of the Canada Auris. We are the only company that has the approval for this product in the U.S. And so we believe that this strategy with the targeted, where we offer targeted small panels in the specialty area will continue to deliver very nice growth for the company. Now let's go to LTG. Every time we do comment LTG, we need to be aware of the fact that it is a B2B business, so you may have quarter to quarter variances related to the fact that, again, we don't sell to final customers, or let me say that we, a small portion of the businesses is direct to final users is more B2B. So depending on the way that our partners are scheduling the purchasing of the components, then we may see variations in the quarter. Long story short, the quarter was a good quarter for LTG plus 8%. And we foresee that by year end, NTG will be on the would be positive. And so we'll grow notwithstanding, you know, on the headwinds that companies are welcome our partners have in life science. But at the end of the story, we see that increasing consumables and increasing royalties more than compensate the shortage that today the business is in instrument placement. And as I said before, this is a very favorable mix for the company because of the instrument side. Clearly, our margins are less than consumables and royalties. Last but not least, when it comes to new products introduction, we filed one of the blood panels for Plex in October. Within the next week or so, we're going to be filing the last blood panel, and we are doing the clinical studies for GI, which are proceeding fine. And so we are on track to deliver to the US market the full panel as per plan by next year. On the liaison immuno side, as said, we completed the second clinical study as requested by the FDA for the line detect. We submitted the data. We have not heard back, no feedback from the from the FDA so far, so typically in this case that would be good news and we expect that Lyme will be approved in the US for the next season. OK, now I'm gonna. Now leave the podium to the CFO, Mr. Pedro, who is going to take you through the numbers, and then we will take questions.

Good morning and good afternoon, everybody. Thank you for joining GSR in Q3 24 earnings call and for the interest you are showing in our company. In the next few minutes, I'm going to walk you through the financial performance of GSR during the first nine months of the year. And I will then turn the line to the operator for the usual Q&A session. Year-to-date total revenues at €876 million are above last year by 4% of €30 million, despite the expected decrease in COVID sales down by €26 million and the different perimeter of consolidation coming from the carve-out of the flow cytometry business in Q1 2023. The business ex-COVID is growing the first nine months of the year at constant exchange rate by 7%, which becomes 8% organic, which means if we exclude the flow cytometry business. Therefore, in line with the higher range of the full year guidance. COVID sales accounted for 20 million euro, vis-a-vis 46 million euro in 2023, Therefore, broadly in line with our 2024 outlook, which is calling for 30 million, considering that we are expecting the peak of the season in the last quarter of the year. The year-to-date FX impact is not material at all, like it was in H1. Q3 organic revenues, ex-COVID, at constant exchange rate grew vis-à-vis 2023 by 10%, or €25 million, thus recording an acceleration toward the first two quarters of the year, which closed with an increase of 5% and 7%. This variance has been driven by a solid performance of both the immuno and molecular franchises, up by 11% and 6%. and buy an acceleration in the LPG business up by 8%, mainly driven to an easy comp toward 2023, the business-to-business story Carlo just reminded us, and the positive phasing of a couple of buy orders of consumables. Despite Q3 nice LPG performance, we continue to see a generalized softness of the life science market, particularly in instrument sales, which year-to-date are down by about 15% compared to last year, and therefore we are expecting the overall LTG business to be flourished full year 2024 vis-à-vis 2023. Year-to-date adjusted gross profit at €578 million, or 66% of revenues, is better than last year by 25 million euros, 5%, with a ratio of revenues of 66%. It's slightly better than 2024, which closed at 65%. All the initiatives aimed at improving operation processes that contain costs allowed us to preserve margin. despite the inflationary pressure we experienced, as we all know, in the past 18 months, which is now muted, and the manufacturing costs we are incurring into to set up our new plant in Shanghai, which has not started production yet. I believe this to be a remarkable indicator of the success of the efforts we put in place to safeguard our profitability and to actually increase it. September year-to-date adjusted operating expenses at €343 million are basically in line with 2023, with a ratio of revenues of 39% vis-à-vis 40% of the last year, confirming the trend we saw and we discussed in H1 results. The fact that operating expenses have not increased despite the investment to support an immediate acceleration program in the U.S. And this physiological yearly labor cost rise is a clear demonstration of our discipline in managing the cost base. And the result of the synergies delivered after the Luminex acquisition and marks a clear path to increasing profitability. Once again, in line with the plan we presented during the last capital market day. Adjusted operating income and expenses negative for €9 million are higher than last year by €8 million. This variance is mainly driven by a tough comparison with 2023, which recorded an income of €3 million and was affected by some non-ordinary one-off elements. and by many other moving parts, amongst which I would like to mention a new tax introduced in 2024 by the Italian government on medical device companies equal to 0.75% of sales made to the institutions covered under the Italian national health system. As a result of What I just described, year-to-date adjusted EBIT at €225 million or 26% of revenues is higher than last year by €16 million or 8%, whereas the increase in Q3 is 11%. Year-to-date adjusted interest income at €3 million is basically in line with last year, and the same is true for the adjusted tax rate. which closed the first nine months of the year at 23%. Q3-24 tax rate is slightly lower than the corresponding quarter of 2023, and I am expecting a further reduction in Q4, similarly to what happened last year, as a result of the true up of the impact of the R&D tax credit in the US and the patent box in Italy. Year-to-date adjusted net result at €176 million, or 20% of revenues, is better than last year by €12 million, or 8%, whereas the increase accelerates to 12% in Q3. Lastly, the adjusted EBITDA in the first nine months of the year at €292 million, or 33% of revenues, is better than 23% by €15 million, or 5%. whereas the increase in the third quarter once again accelerates to 7%. Let me now move to the net financial position. We closed September 24 with a net debt of €686 million, therefore recording an improvement of €91 million compared to the end of 2023, mainly as a result of the very sound free cash flow achieved in the first three quarters of the year. Before discussing 2024 guidance and opening the Q&A session, let me give you a brief update on the so-called Italian payback. The short story is that there are no news compared to H124 earnings call and considering the provision we have built over the years in our balance sheet, we are not expecting any material impact to our financials under the current scenario. We keep on monitoring the situation with our legal advisors, and we will provide you with an update as things progress. Let me now finish with my remarks moving to 2024 outlook. Considering Q3 very strong results and what we expect from Q4, we decided to further revise the revenue guidance upward. To be more specific, we expected previous year exchange rate revenues ex-COVID to grow at about 7%, with COVID sales at about €30 million, and adjusted EBITDA margin at around 33%. With that said, let me please turn the line to the operator to open the usual Q&A session. Thank you.